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European banks may have to raise US$128 billion under new Basel rules
Stricter standards drawn up by the Basel Committee could be a “game changer” for banks in Europe
A McKinsey & Co report released this month warns that new regulations proposed by the Basel Committee on Banking Supervision could force European banks to take unconventional measures.
- Should the regulations come into force, banks in Europe may face a capital shortfall of US$128 billion, and would need to raise more capital or shed about 800 billion euros of risk-weighted assets.
- New standards will reduce European lenders’ common equity Tier 1 ratio, a gauge of financial strength, leaving banks short of 10.4% ratio required by regulators.
- The greatest impact will be felt by banks in Sweden, Denmark, Belgium, the Netherlands and Ireland, where banks calculate capital needs using low default rates on their mortgage portfolios.
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